BP Share (LON: BP) Target Raised Following Trading Update

Shares of BP (LON:BP) are facing mixed sentiment as analysts weigh the company's recent trading update against persistent concerns about its financial leverage. The stock is navigating a complex landscape of increased upstream production, fluctuating oil and gas prices, and varied analyst evaluations. BP shares as of 16th of October, sits at 413.05 GBp, falling 0.44%. In the past 5 days, the share price has dropped 15.95 GBp and 3.71%.

The initial reaction to BP's Q3 trading update saw Jefferies raising its price target on BP to 420 GBp from 400 GBp, maintaining a Hold rating. This adjustment reflects a nuanced view, acknowledging potential upside while remaining cautious about the company's financial standing. However, Jefferies pointed out that BP has the “highest leverage in the sector,” adding that the company “could struggle to achieve leverage reduction in a weaker oil price environment.” This concern casts a shadow on BP's ability to manage its debt effectively amid market volatility.

BP's Q3 trading update highlighted an expected rise in upstream oil and gas production, particularly from its U.S. onshore fields. This increase in output is a positive sign, indicating the company's ability to capitalise on its assets. However, the update also revealed weaker performance in oil trading and average results in gas trading. Furthermore, while gas prices received were lower than before, BP reported an increase in its refining indicator margin to $15.8 per barrel from $11.9, which is expected to contribute an additional $300–$400 million to its earnings. This gain is partially offset by compliance costs and an unplanned outage at the Whiting refinery due to flooding, illustrating the challenges BP faces in maintaining operational efficiency.

Other analyst actions further complicate the picture. Piper Sandler maintained a Neutral rating on BP but raised the price target from $35.00 to $38.00, signaling cautious optimism. BNP Paribas upgraded BP's rating from Neutral to Outperform, indicating increased confidence in the company's stock and strategic direction. Conversely, JPMorgan downgraded BP from Neutral to Underweight in November 2023, reducing the price target to 550 pence from 615 pence, citing concerns over BP's increasing reliance on trading and working capital.

Jefferies' downgrade in May 2025, from Buy to Hold, with a reduced price target of £3.90 per share from £5.50, underscored the risks associated with BP's high leverage. The firm highlighted that BP's net debt to equity ratio stood at 90%, significantly higher than the sector average of 33%. BP's plan to reduce net debt by $5–9 billion by 2027 faces increased risk due to the current macroeconomic conditions. This high debt level remains a critical point of contention among analysts.

The varied analyst opinions reflect the inherent complexities of BP's financial landscape. While the company demonstrates operational strengths in upstream production and refining margins, its high leverage and vulnerability to oil price fluctuations raise concerns about its long-term financial stability. The potential for M&A activity, often discussed in media reports, is viewed skeptically by some analysts, including Jefferies, who believe the company's “valuation discount is not wide enough” to make it an attractive target.

Analyst Summary: Bull and Bear Cases

The market's response to BP's trading update and subsequent analyst evaluations is likely to remain cautious, influenced by the conflicting signals of operational improvements and financial vulnerabilities. As BP continues to navigate a challenging environment, investors will closely monitor its ability to manage debt, capitalise on its assets, and adapt to fluctuating market conditions. The divergence in analyst opinions underscores the need for investors to carefully weigh the potential risks and rewards associated with BP's stock.